Huang steps down as Nvidia chief after 33 years. Stock falls as much as 13%, analysts slash price targets

The founder of the world's most valuable chipmaker stepped down after a scandal that led to an FBI investigation. Nvidia stock has lost a third of its value since its October record, and investors are wondering what will happen to the entire AI boom.

A week ago, this would have sounded like a bad joke. Jensen Huang, the man in the leather jacket who turned a graphics-card maker into a five-trillion-dollar company, stepped down as head of Nvidia $NVDA on Thursday with immediate effect. He also left the board. The company that underpins a large part of the global AI boom is now being run temporarily by its chief financial officer, Colette Kress.

The market reacted sharply. Nvidia stock fell as much as 13% right after the market opened, later clawed back some of its losses and traded around $160. On October 6, it had closed at a record $239. Since last Thursday, more than $600 billion has been wiped from the company's market value, and Nvidia has fallen below four trillion, behind both Apple and Microsoft.

The week that toppled AI's most powerful man

It all began over the weekend. In a letter to employees, Huang admitted to an extramarital affair with a woman whom US intelligence agencies consider an associate of Chinese intelligence. He apologized to his family and the company, and the board launched an independent investigation. So far, it says, there is no indication that trade secrets were leaked.

But the case has another dimension, and it's more important to investors than the tabloid details. The woman in question was part of the leadership of Singapore-based Megaspeed, a major Nvidia customer under US investigation on suspicion of reselling banned chips to China. Megaspeed denies any wrongdoing, and Beijing calls the allegations slander.

On Monday, President Trump announced that the FBI was looking into the relationship, even as he himself called Huang an “honorable guy.” On Wednesday, US media reported another relationship, this time with a subordinate manager at Nvidia itself. The board accepted Huang's resignation several hours later.

“We expect the company's operations, customer commitments and new product roadmap to continue without interruption.”

Harvey C. Jones, newly appointed chair of Nvidia's board

A company that never planned for Huang to leave

Nvidia's biggest problem now isn't China or the competition. It's succession. Huang led the company from its founding in 1993 and ran it in a highly unusual way: around sixty people reported directly to him, and there was no publicly known plan for who would replace him one day.

A small detail in the official announcement of the leadership change also shows just how much the company was built around one person. Nvidia named its first-ever board chair. The role went to 73-year-old Harvey Jones, who has served on the board since the very beginning.

Kress has been with the company since 2013, and investors know her well from every quarterly call. But she's a finance executive, not a chip-business visionary. The board is therefore looking for a permanent chief both inside and outside the company. Analysts cite chief scientist Bill Dally, chief technology officer Michael Kagan and Ian Buck, who helped create the key CUDA software, among the internal candidates.

“I am committed to building on the exceptional foundation Jensen has created over the past 33 years.”

Colette Kress, interim CEO and CFO of Nvidia

Wall Street slashes price targets in half

Analysts who had spent years raising their Nvidia targets turned around this week. According to FactSet data, at least ten of them downgraded their view of the stock.

Interestingly, even the most cautious analysts see a price target above today's share price. Bernstein, which halved its estimate, also says the stock is “absurdly cheap.” Oppenheimer, by contrast, withdrew its price target altogether and warned of an exodus of key staff.

The history is worth knowing, too. Yahoo Finance reviewed six major cases in which a company's chief stepped down because of a scandal, from Boeing to McDonald's. On the first day, stocks typically lost only around 3%; what came later was worse: four of the six companies underperformed the S&P 500 over the next twelve months, typically by 12 percentage points. But the sample didn't include a single founder of a company this size.

Tuesday will show whether the business keeps running

The timing could hardly be worse for Nvidia. It is set to report third-quarter results on Tuesday evening, November 17, local time, and the date remains unchanged, according to the company.

The numbers themselves should be strong. In the second quarter, Nvidia brought in $96.2 billion, twice as much as a year earlier, and it has itself forecast around $108 billion for the third quarter. The scandal has so far had no effect on chip orders, and data centers are still being built.

But investors will be listening for something different than usual. Three things will matter more than revenue itself:

• Next-quarter outlook - the first forecast that won't be signed off by Huang

• Departures - whether key engineers and managers are leaving the company

• China and export licenses - what the company says about the investigation and sales to Asia

A wave that will hit other stocks, too

Huang's departure isn't just one company's story. Rivals gained on Thursday: Broadcom $AVGO rose as much as 6% and AMD $AMD around 3%, as investors bet that some orders could shift to them. TSMC $TSM, which manufactures Nvidia's chips, fell more than 2%.

The hardest hit were companies that depend directly on Nvidia. So-called neoclouds, companies that rent out computing power using its chips, saw a sell-off: CoreWeave $CRWV fell nearly 12% and Nebius $NBIS 17%. The reason is simple. Huang personally helped them with financing and purchase guarantees, and no one knows whether his successor will continue doing so.

A second wave could come from Washington. Huang was the most vocal opponent of restrictions on chip exports to China and managed to secure concessions from the Trump administration. Now senators are asking the Commerce Department to preserve all records relating to chip exports, and the chairs of two House committees are threatening to subpoena Huang. Tighter rules on sales to Southeast Asia have suddenly become much more likely. The good news is that Nvidia already assumes no revenue from Chinese data centers in its outlook.

And then there's Huang himself. He remains the largest individual shareholder, with a stake of around 3.5%, and hasn't yet said what he plans to do with his shares.

Nvidia still has the best chips on the market, full order books and a gross margin of 75%. It lacks just one thing: the person investors trusted enough to forgive even a very high valuation. The market will start to learn on Tuesday how much of the share price was technology and how much was Huang.